Curious everyone's thoughts on how to underwrite multifamily rent growth.
- do you apply a lower growth rate for renewals compared to relets? (For instance- 50% renewal rate, 2% growth for renewals (50%) and 3% growth for new leases (other 50%). Or is it not worth it in your opinion to break out renewals and new leases separately after stabilization? I can see pros and cons to both methods.
- for any given month, most of the leases in-place at the property in said month would realistically NOT be at market rent for that month (since most leases will have been signed at some point over the last 12 months), so, do you build that into your monthly proforma (take a blended average across the last 12 months) or do you just annually grow rents at some % each year and apply to all units for that year? Or something else?
I've seen it done a variety of ways and have my opinions, but want to hear from this group what your preferences are and what you believe is the most technically correct way to underwrite this.
2. This is just loss to lease, no? Market rents and effective rents should be two different lines in your model.
Ultimately your forecast is going to be wrong so save yourself time by just applying a flat %. It also takes away the false sense of accuracy you get by adding layers and layers of mechanics
Exactly this. The IRR difference between all of the sub-options is too small to make a difference. And if it does, then the deal doesn't work, period.
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